Fitch Ratings has affirmed the United States' long-term sovereign credit rating at AA+ with a stable outlook, removing near-term downgrade risk while accompanying its assessment with cautionary commentary on growth, fiscal policy, and political dysfunction. Under standard rating agency methodology, a stable outlook signals that Fitch does not anticipate a rating change over its typical 12-to-24-month assessment horizon.

The rating agency now expects US economic growth to moderate to 1.9% in both 2026 and 2027, a notable step down from the 2.8% recorded in 2025. Fitch pointed to a clear cooling in the labor market as a key driver of that slowdown, noting that labor demand has weakened and job creation has dropped significantly in 2026.

On inflation, Fitch struck a more patient tone than some Federal Reserve officials currently debating further rate adjustments, projecting that price growth will not return to the Fed's target until the end of 2028. That timeline is more pessimistic than the Federal Reserve's own Summary of Economic Projections, which has generally envisioned inflation converging on the 2% objective over a shorter horizon, underscoring a meaningful gap between the rating agency's macroeconomic baseline and the central bank's.

Despite the softer growth outlook, Fitch said the AA+ rating remains underpinned by the fundamental structural strengths of the US economy. The agency cited the sheer scale of American output, high per capita income levels, a dynamic business environment, and what it described as exceptional financing flexibility — a reference to the dollar's reserve currency status and the depth of Treasury markets — as core supports for the rating.

The more pointed warnings in Fitch's commentary centred on fiscal policy and political dysfunction. The agency said gridlock and government shutdowns may become both more likely and more protracted going forward, a risk that has repeatedly rattled markets in recent years as funding deadlines come and go without resolution.

Longer term, Fitch highlighted the growing burden of entitlement spending, projecting that Medicare and Social Security expenditures will expand by nearly one percentage point of GDP by 2032 as the population continues to age. The fiscal backdrop it described is one in which gross federal debt has already surpassed $35 trillion and debt-to-GDP exceeds 120%, placing the United States among the most heavily indebted advanced economies. Net interest payments on that debt have grown into one of the largest single categories of federal spending, recently surpassing annual defense outlays as higher borrowing costs compound the effect of a rising debt stock. Taken together, the agency said high fiscal deficits, a substantial interest burden, and government debt levels that are already high and still rising continue to constrain the rating, even as it stopped short of signaling any near-term downgrade risk.

The affirmation effectively locks in the assessment Fitch first arrived at in 2023, when it stripped the United States of its top-tier AAA rating, citing many of the same structural concerns around fiscal governance and repeated brinkmanship over the debt ceiling. With no material change in trajectory since then, Thursday's decision reads less as new information for markets and more as a formal restatement of a fiscal picture that ratings agencies — and increasingly bond investors — have already factored into their positioning.

Within the broader ratings landscape, Fitch is one of the "Big Three" credit rating agencies, alongside S&P Global Ratings and Moody's. Together, the three firms control the overwhelming majority of the global ratings market, generally estimated at upwards of 90–95%. Within that trio, Fitch is typically regarded as the smallest by market share and revenue, with S&P and Moody's viewed as the more dominant and closely watched pair, particularly in US Treasury and equity markets.

Nevertheless, Fitch carries meaningful institutional weight. It is recognized as a Nationally Recognised Statistical Rating Organization (NRSRO) by the US Securities and Exchange Commission, the same designation held by S&P and Moody's, meaning its ratings feed into bank capital rules, bond index inclusion criteria, and institutional mandate thresholds. Many large institutional investors and index providers require ratings from at least two of the three agencies, which keeps Fitch structurally relevant even when its individual actions are not the primary market mover.

On sovereign ratings specifically, Fitch's decisions tend to draw outsized attention relative to the agency's size, largely because of precedent. Its 2023 downgrade of the US from AAA to AA+ was a genuine market event. Moody's was the last of the Big Three to hold the United States at the top tier, maintaining its AAA rating until 2025, while S&P had already downgraded the US back in 2011. So while Fitch's day-to-day sovereign and corporate calls may move markets less than comparable actions by S&P or Moody's, its track record on the US sovereign gives its commentary a degree of scrutiny that exceeds what its market share alone would suggest.

Source: InvestingLive